The BIA’s Fatal Flaws – No. 2 Losses Are Not Linear

bia-flaws-2-transExpecting business leaders to determine the financial losses associated with process interruption is an exercise in futility. In today’s large, distributed organizations with their hugely complicated and intertwined business environments, few business leaders are able to accurately estimate losses associated with process interruption, but when pressed by the BIA process for a “guesstimate”, those leaders will provide an answer. In the best cases, their answers will duplicate many of the same loss elements that other departments included in their guesstimates. In the worst cases, their answers will be totally discounted by management and will cast doubt on the whole analysis.

Even if we were to assume that losses could be estimated perfectly, the process would be impractical at best. Let’s say we could estimate exactly when an interruption will irritate our best customer versus when it will cost us an order from that customer versus when it will cause us to permanently lose that customer (using a retail metaphor). Let’s further assume that we can predict exactly when the loss will occur and exactly how much it will cost us…to the penny. The next step would be to estimate the loss for our second best customer and then the third best and so on. For each customer, the answer would be different based on that customer’s particular attitudes, needs, priorities, etc.

And even if we estimated perfectly for each and every customer…our analysis has not begun to address: different durations of interruption; whether the supply chain has been impacted too; whether the event caused larger, regional ramifications; variable impact based on time of occurrence; and a host of other variables that can dramatically change the loss profile based on the timing and nature of the event.

Clearly, a different metric and analytic process is needed to define recovery priorities and a different lens needs to be used to garner management’s commitment.

It’s time to dump the traditional BIA!

2017-06-22T14:39:51+00:00 January 25th, 2016|